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Court of Appeal rules that results-based commission must be paid during holiday

The Court of Appeal confirmed on 7 October, in the long running case of Lock v British Gas, that holiday pay must include a representative element of results-based commission.

However, this may not be the end of the road for this important case: while British Gas has not said if it intends to appeal to the Supreme Court, the case raises issues the Supreme Court may well wish to consider.

The ongoing Lock litigation is of significance to many employers since it challenges whether British law, in the form of the Working Time Regulations 1998 (WTR), can be interpreted ‘purposively’ so as to give effect to EU case law which requires holiday pay, payable under the Working Time Directive (WTD), to include elements of normal pay, such as results-based commission.

Back in February, the EAT concluded that, with necessary “tweaks”, WTR can be read in such a way as to accommodate the EU interpretation of pay in this context and that other case decisions along the same lines (namely Bear Scotland v Fulton, which considered the relevance of non-guaranteed overtime payments to holiday pay) were correctly decided. Today, the Court of Appeal has agreed with that conclusion.

Although a decision in which the Judge conceded he had “wavered”, today’s ruling will be concerning for many employers. The Court of Appeal appears to have been persuaded towards two key findings: that the WTR were enacted “solely and deliberately” for the purpose of implementing the WTD, and further, that the law requires the Court to presume that the UK government intended by the WTR to fulfil entirely the obligations arising under the WTD. Accordingly, the fact that it only became apparent that EU law required normal remuneration to be paid during annual leave some eight years later, was not sufficiently material, in its view, to prevent a purposive interpretation of the WTR.

If British Gas were to appeal, we might not expect an ultimate determination of the issues until the Autumn of 2017 at the earliest. Clarification is therefore awaited.

In the longer term, it will be for the UK parliament to decide what employees are entitled to by way of paid annual leave, as a result of the UK having decided to leave the EU, which we now understand will likely take place at the end of March 2019. Theresa May’s words of last Saturday – “Existing workers’ legal rights will continue to be guaranteed in law …. We’re going to see workers’ rights not eroded, and not just protected, but enhanced under this government.” – might well come under scrutiny.